China chalked up unexpectedly strong year-on-year growth of 11.9 percent in the first quarter, prompting renewed calls for tighter policies to prevent the world’s third-largest economy from bubbling over.
The rate of expansion, the fastest since 2007 and above the median forecast of 11.5 percent in a Reuters poll, was flattered by a low base of comparison a year earlier, when the economy was reeling from the global financial crisis.
However, economists said the figures, released yesterday by the National Bureau of Statistics, were unquestionably sturdy and would justify a firmer policy stance to nip inflation in the bud.
PHOTO: REUTERS
“We think in absence of a dramatic fall in external demand, it is critical for the government to tighten policy more decisively than they have been doing in order to prevent overheating,” Goldman Sachs economists Yu Song (宋宇) and Helen Qiao (喬虹) said in a note to clients.
However, not all economists said it was urgent for Beijing to slam on the brakes. They said that the government is already winding back its anti-crisis investment spending and has ordered banks to reduce new lending by more than 20 percent this year.
While property prices leapt 11.7 percent in the first three months, consumer inflation remained under control. The consumer price index rose 2.4 percent in the year first quarter, below market expectations of a 2.6 percent increase.
“While we expect policy tightening over the coming quarter, there is no need for dramatic measures,” Mark Williams with Capital Economics in London said.
So far this year the central bank has twice raised the proportion of deposits that banks must hold in reserve and has also aggressively drained cash from the banking system.
However, unlike a clutch of Asian neighbors, including India and Malaysia, China has kept its benchmark interest rates unchanged even though it is leading the global recovery charge.
And unlike Singapore on Wednesday, China has not tightened financial conditions by pushing up its exchange rate — despite quiet, persistent pressure from the US, which believes a cheap yuan gives China an unfair edge in global markets.
The Chinese commerce ministry yesterday reaffirmed its opposition to a stronger yuan, arguing that it would do nothing to solve the problem of near double-digit US unemployment.
However, Glenn Maguire, an economist with Societe Generale in Hong Kong, said yesterday’s data deluge reinforced his conviction that a revaluation of the yuan and a widening of the currency’s trading band were imminent.
“It could happen any time,” Maguire said.
The reaction in financial markets to the figures was muted, partly because they were circulating beforehand. The yuan rose modestly in the offshore forwards market, which was pricing in a 3.2 percent rise against the dollar over the next year.
Regardless of the degree of tightening, the first quarter could well prove to be the high water mark for growth this year, as the base of comparison will become increasingly demanding.
A Reuters poll issued on Wednesday projected 10 percent GDP growth this year, which will almost certainly catapult China past Japan and make it the biggest economy in the world after the US.
In addition to quarterly GDP, China released a batch of figures for last month that were strong and close to expectations.
Retail sales rose 18.0 percent from a year earlier, industrial output expanded 18.1 percent and urban investment in fixed assets such as roads and factories rose 26.4 percent in the first quarter.
“This year, the economy’s momentum has increased. We are off to a good start,” statistics office spokesman Li Xiaochao (李曉超) said.
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